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Abdul Rahim Abdul Wahab, FSA

Director & Actuary

Actuarial Services Division

abdul.rahim@sidathyder.com.pk

Sidat Hyder Morshed Associates (Pvt) Ltd

Islamic Finance & Investment Symposium 6 - 7 Dec 2006, Karachi

What is covered

• Gap in Islamic Finance

• Conventional Insurance

• Takaful Concept

• Takaful Rules

• Retakaful

• Market Potential

• Islamic Banks and BancaTakaful

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

Gap in Islamic Finance

• Islamic Banks contracts require assets to be insured

with a Takaful company as per Shariah requirement.

• Many potential consumers of Islamic Finance stay away due to Insurance

being on conventional basis.

• Doctrine of Necessity applied till Takaful was not available.

• Takaful Rules promulgated in September 2005.

• One General takaful operator since last one year. More to follow in coming

months giving consumers a choice within takaful.

• Takaful exists for almost 30 years – typically with 2 to 3 years lag with

Islamic banking development. Started with Sudan, later ME and Malaysia.

• Also number of synergies could be created with Islamic

banks distributing takaful products (BancaTakaful) or

setting up takaful companies with equity participation.

• Standing requirement of Islamic Banks for Islamic House Mortgage

schemes, Car Ijarah schemes as integrated benefits.

• Distribution of Takaful Savings and Protection plans in different forms.

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

CONVENTIONAL INSURANCE

 Indemnification against unforeseen financial losses

(not to profit from loss)

 Commercial Risk Transfer

 Law of Large numbers - Insurance company pools

risks/reinsures above capacity.

 Recovers expenses for managing the pool

 Investment return under life insurance shared with

PHs based on Actuarial Valuation or otherwise.

 Profit for the shareholders based on Underwriting

results and Investment income

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

OBJECTIONS TO CONVENTIONAL INS

Objections to Conventional Ins

 Elements of:

 Uncertainty – Gharrar (non-existence of

goods, un-known quantity, timing) in a

commercial risk transfer contract.

 Interest – Riba

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

BASIC CONCEPT OF TAKAFUL

 Takaful means “Joint Guarantee” for mutual

assistance within a group. Each member of the group

pools to support the needy within the group.

 Mutual protection contains elements of cooperation,

shared responsibility joint help – all encompassing in

takaful concept

 Principle objective is the same as Insurance - to

indemnify against unforeseen financial losses.

 Mechanism followed is however different.

 An economic institution whereby the losses of the

unfortunate few are shared by the contribution of the

fortunate many who are exposed to the same risk on

“Co-operative Risk Sharing” basis.

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

HOW IS IT DIFFERENT FROM INSURANCE

 Concept of “Risk Manager” NOT “Risk Taker”

 Underwriting Surplus belong to Participants

 Underwriting Deficit may be shared by participants

 Risk Management

 Underwriting as usual

 Ensure Risk premium adequate – not commercial

driven

 Retakaful Pool instead of Reinsurance

 Interest free loan by SH (Qard Hasnah)

 Investments compatible with Shariah based on Profit

Sharing principles

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

CONVENTIONAL vs TAKAFUL

Issue Conventional Takaful

Organization Profit for shareholders/ Mutual for participants

Principle Risk transfer Risk remains with participants

No underwriting profits for SHs

Form of Commercial Cooperative, Shariah contracts of

Relationship Exchange/Contract of Wakala or Mudarabah with

compensation contribution for mutual assistance

Capital Shareholders Operator provides set-up capital.

Laws Regulations Regulations plus Sharia approval

Ownership Shareholders Participants of Takaful Fund

Investments Equity/debt-no Sharia compliant investments only /

restrictions No interest

Surplus Shareholders account Participants account

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

Takaful Rules 2005

Capital requirement – 80 m for General and 150 m for

Family. Likely to be increased to Rs.300m for General

and Rs.500 m for Family. Board of Investment

requirement is $4 million (Rs. 240 million) at present.

Composite companies not allowed

Wakalah Model for Risk Protection

100% Surplus distribution for participants (after

reserves etc)

Underwriting deficit – Qard Hasnah by SH or recover

Mudaraba or Wakala Model for Investment Sharing.

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

Takaful Rules 2005

Takaful company can also share risks on

coinsurance basis from outside Pakistan

Can use conventional reinsurance, only if

retakaful is not available and if Shariah Board

permits. Wakala based would be preferred.

Windows not allowed for atleast 5 years

Transformation of existing conventional general

companies is allowed in one year

Three member Shariah Board and Annual

Shariah Audit

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

RE TAKAFUL

 Retakaful solutions evolving although not

enough capacity available.

 Best Re (Tunisia), Asean Re (Labuan) and

Tokyo Marine are providing retakaful based on

Mudaraba model. Shariah scholars and SECP

have objections to Mudaraba model. Need to

look for Wakala based Retakaful solutions as a

preferred route.

 Lloyds syndicate is setting up a Retakaful

solution for General Takaful.

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

RE TAKAFUL

 Takaful Re launched in Dubai by ARIG with $125 m capital.

Recently rated BBB by S&P becoming the 1st Retakaful operator

with a rating and Wakala based model.

 Swiss Re recently launched Wakala based Family Retakaful Fund.

 Hannover Re is working on Retakaful solutions.

 Munich Re has also incorporated its Retakaful subsidiary in

Malaysia.

 “Doctrine of Necessity” may no longer be justified hopefully

leading to Takaful being backed by RETAKAFUL rather than

Reinsurance.

 Government/ SECP needs to encourage setting up of Retakaful

pools.

 Possibly within NICL / PRCL for General Retakaful

 State Life for Family Retakaful

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

Market Potential

Pakistan’s insurance

density and insurance

penetration rates low.

Reasons – Lack of

awareness and religious

concerns.

Takaful can help push

the penetration rates up.

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

Growth of Life Insurance Premium

Billions

20.00

18.00

4.65

16.00

14.00

3.57

12.00 3.11

Private

10.00 1.93 State Ow ned

8.00 1.35

13.90

6.00 11.11

9.92

8.39

4.00 6.98

2.00

0.00

2001 2002 2003 2004 2005

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

Growth of General Insurance Premium

25.00

20.00

2.77

1.74 Misc

15.00 6.96

1.26 5.89 Motor

10.00 1.23 4.28

1.36 3.62

1.20

3.05

Marine

3.00

2.94

3.13 2.40

1.71

5.00

1.28

1.63

6.92

Fire

5.96

4.14 4.66

3.22 3.59

-

2000 2001 2002 2003 2004 2005

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

ROE OF INSURANCE INDUSTRY

GENERAL INSURANCE RETURN ON EQUITY (%)

Average Equity

Year Weighted (%) EFU AIC NJI Shaheen Askari

2005 58 56 63 57 39 28

2004 33 60 27 30 11 23

2003 32 33 29 41 21 16

2002 21 17 21 25 18 13

LIFE INSURANCE RETURN ON EQUITY (%)

Average Equity

Year Weighted (%) EFU NJI ALICO METRO

2005 26 43 15 15 1

2004 27 47 21 6 8

2003 26 40 33 13 2

2002 14 17 -4 21 4

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

Islamic Banking

Dec 02 Dec 03 Dec 04 Dec 05 Mar 06 June 06

Number of full fledge Islamic Banks 1 1 2 2 3 4

Number of Islamic Bank Branches 6 10 23 37 39 48

No. of conventional banks operating - 3 7 9 10 11

Islamic Banking Operation

Number of stand alone Islamic - 7 21 33 34 39

Branches of conventional banks

Number of Branches expected to grow exponentially

Two new banks Emirates Global Islamic Bank Limited and First Dawood Islamic

Bank Limited

State Bank growth estimates for Islamic Banks

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

Islamic Banking Growth

Table-5.2: Sources and Uses of Funds Rs. In billion

2003 2004 2005 Mar-06 Jun-06

SOURCES

Deposits 8397.1 30184.8 49931.8 53667 59657.5

Borrowings 1899 6559.1 9005.8 8948.2 8539

Capital & Other funds 1993.7 5123.1 7811 10268.9 12284.5

Other 624.8 2276.1 4744.8 6416.9 7121.7

12914.6 44143.1 71493.4 79301 87602.7

USES:

Financing 8652.2 27535.5 45786.2 48717.6 51602.8

Investments 1242.3 2007 1854.2 6034.8 6333.1

Cash, bank balance, placements 1978.5 11899.7 19314.3 19718.7 22877.4

Other assets 1041.7 2700.8 4538.7 4829.9 6789.3

12914.7 44143 71493.4 79301 87602.6

Source: SBP Publication June 2006

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

Opportunities – General Takaful

 Islamic Banks have a mandated requirement / moral obligation to insure

assets from a takaful company if available.

• Islamic Banks had disbursed Rs.58 billion (approx) – June 2006 in

various assets

 General Insurance market size 2005– GWP Rs. 20 Billion (approx.), 38

companies

• Even if 10% switch to this basis it is more than Rs. 2.0 billion.

 Untapped Market - Individuals do not take insurance - Motor, PA, Health,

Home

• Even if 10% of existing market do not insure for religious reasons, its

over 2 billion.

A large number of industrial groups have shown interest in takaful.

Only one Takaful operator licensed in Pakistan, so far!! – More to follow

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

Opportunities – Family Takaful

Islamic Banks require life cover for House financing etc.

Life Insurance market size 2005– GWP Rs. 18 Billion (approx.), 4

private sector companies. Talks of SLIC being privatised in some

form.

Even if 10% switch to this basis it is more than Rs. 1.8 billion.

Untapped Market - Individuals do not take insurance – Just 2.5

million individual life policies

Even if 10% of existing market do not insure for religious

reasons, its almost 2 billion.

A large number of industrial groups are interested in group life and

health benefits based on takaful.

No Life takaful operator so far!! – Some under formation

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

TAKAFUL IN THE WORLD

• World Takaful Conference Dubai April 2006

• Around 70-80 companies are now operating in 28 countries.

• Takaful is one of the fastest growing sectors of the insurance

industry with around 20 per cent annual growth compared to

less than 10% for conventional.

• Global Takaful premiums are estimated at $3 billion, of which

60 per cent is general takaful and the remaining is family

takaful.

• Middle East accounts for 36 per cent of premiums and about

56 per cent is generated in South East Asia.

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

SYNERGIES AMONGST ISLAMIC

FINANCE PARTICIPANTS

Takaful Operators,

banks and Capital

market players

continuously focus on

product building to

offer more attractive

products that fulfill the

differentiated needs of

the customers.

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

Synergies in Islamic Financial System

• Islamic Banks, Capital Markets and Takaful Operators work together to develop

products using each others strengths leading to competitive products.

• Takaful Operators fill the gap by providing Shariah compliant protection for Islamic

Financing Products.

• Islamic Banks and takaful operators work together to distribute takaful savings

and protection products under bancatakaful arrangements in a more cost effective

manner leading to better consumer values.

• Takaful Operators need longer term investments which fulfill the long term

financing needs of Islamic financial institutions

• Long term investments enable takaful operators to offer better returns to its

customers and shareholders.

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

BANCATAKAFUL

• A mechanism for distribution of takaful products through banks.

Advantages for banks:

• Additional fee income from existing customers received upfront.

• Additional product offering

• Increase customer retention by offering long term plans

• Simple examples are:

• Motor Takaful policy with Car Ijarah of Islamic Bank

• Family Takaful cover with Housing or other financing facility.

• Depositors protection

• Credit card protection

• More complex products include:

• Savings products

• Education products

• Retirement products

• Protection products

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

BANCATAKAFUL TRENDS IN ASIA

• Based on research conducted by Swiss Re Sigma report (2002)

“…by 2006, bancassurance could potentially account for 13% of total

premiums collected in Asia’s life insurance sector and 6% in the non-life

sector”.

• A large interest from insurers at this time as they seek to diversify

from traditional and less productive agency channels.

• Distribution agreements appear to be increasingly common as a

business model in Asia Pacific but increasing focus by major banks

in JVs and ownership models.

• Most of the larger banks in each country have an interest in a

bancassurance operation, or plans to enter the ‘manufacturing’ area

– moving from ‘fee income’ to ‘value creation’, by setting up its own

insurance company.

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

Recap

• Protection against unforeseen financial losses is a

concern for many. Religious prohibition stops.

• Takaful Offers a huge potential market by filling the

gap which remains untapped at present.

• Competitive Pricing of Takaful products would remain

a key factor along with quality service.

• Bancatakaful could fast track efficient distribution and

better customer value.

• Adherence to Shariah principles in operational

practices would be the long term driver for success.

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

THANK YOU

Abdul Rahim Abdul Wahab, FSA

Director & Actuary

Actuarial Services Division

abdul.rahim@sidathyder.com.pk

Sidat Hyder Morshed Associates (Pvt) Ltd

Islamic Finance & Investment Symposium 6 - 7 Dec 2006,

Karachi

Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd

← Older revision		Revision as of 19:04, 10 November 2017
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−	[~~http~~://45.40.~~136.134~~/~~~hodhood~~/HodHoodDocuments/IslamicFinance/Takaful/Takaful%20and%20Mutuality%20by%20Mohd.%20Masua%20Billah.pdf Read the Full Document]	+	[https://www.hodhood.com/en/HodHoodDocuments/IslamicFinance/Takaful/Takaful%20and%20Mutuality%20by%20Mohd.%20Masua%20Billah.pdf Read the Full Document]

← Older revision	Revision as of 02:32, 21 September 2016
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	+
	+
	+	== Top 20 FREQUENT WORDS ==
	+	mutuality 4
	+	concern 3
	+	takaful 3
	+	cooperation 2
	+	dot 2
	+	expense 2
	+	masum 2
	+	oppose 2
	+	applicable 1
	+	application 1
	+	applied 1
	+	billah 1
	+	brotherhood 1
	+	caring 1
	+	comicmif 1
	+	concept 1
	+	consideration 1
	+	divine 1
	+	forum 1
	+	gain 1
	+	gaining 1
	+	hotel 1
	+	humanitarian 1
	+	innovation 1
	+	islamicfinance 1
	+	june 1
	+	levels 1
	+	mechanism 1
	+	mohd 1
	+	mortality 1
	+	mutual 1
	+	nationalit 1
	+	network 1
	+	prince 1
	+	principles 1
	+	rate 1
	+	religion 1
	+	respect 1
	+	sex 1
	+	sharing 1
	+	solidarity 1
	+	status 1
	+	submission 1
	+	sum 1
	+	yahoo 1
	+
	+
	+
	+	== DOCUMENT KEY POINTS ==
	+	*ma sum billah masum yahoo dot com masum applied islamicfinance dot comicmif takaful network forum prince hotel kl june
	+	*takaful and mutuality doctor mohd
	+
	+
	+	''Please note, This is an auto generated summary based on sentances position in the document and other factors''
	+	== DOCUMENT WORD ANALYSIS ==
	+	=== Main Category ===
	+	: AlHuda Material\takaful
	+
	+
	+	=== KeyWords ===
	+	taka islam insur malaysia productdeferred shariah countries muslim financial retakaful model growth custom partner developed service mutual bankable provided scheme
	+
	+
	+
	+	== RELATED DOCUMENTS ==
	+	:[[A Review of Takaful by Prof. Khawaja Ahmed Saeed]]
	+	:[[Agency Management,Training and Incentive Programme]]
	+	:[[Audit Issue of Islamic Banking]]
	+	:[[Banca Takaful by Faisal Shahzad Abbassi]]
	+	:[[Best Practices from e- Insurance to e-Takaful by Sami Guello]]
	+	:[[Calculated Risks, Measurable Results]]
	+	:[[Challenges & Issues Faced by Takaful Industry by Mr. Imtiaz ]]
	+	:[[Co-Operative Insurance and Takaful]]
	+	:[[Current Achievements of Takaful by Dr. S. J Malaikah]]
	+	:[[International Cooperative & Mutual Insurance Federation]]
	+	:[[Islamic Banking And Finance Malaysia’s Experience And Achiev]]
	+	:[[Islamic Finance & Investment Symposium by Sohail Jaffar]]
	+	:[[Islamic Insurance in 21st Century by Ahmad Feizal]]
	+	:[[Islamic Insurance Opertunities and Challenges]]
	+	:[[Issues and Challenges in Retakaful by Azman Ismail]]
	+	:[[Leveraging BancaTakaful as a Key Growth Channel by Mr. Rohai]]
	+	:[[Life Family Takaful by Mr. P Ahmed]]
	+	:[[Micro Insurance Co-Operative and Takaful]]
	+	:[[Micro Takaful by Shabir Patal]]
	+	:[[Microinsurance and Takaful]]
	+	:[[Microinsurance, cooperatives and Takaful]]
	+	:[[MicroTakaful – the way forward by Capt. M. Jamil Akhtar]]
	+	:[[Opertunities in Islamic Insurance]]
	+	:[[Present Scenario and Future Potentials of Takaful by Kazi Md]]
	+	:[[ReTakaful by Rohail Ali Khan]]
	+	:[[Syariah Compliant General Takaful Products by Sami Guellouz]]
	+	:[[Takaful and Mutuality by Mohd. Masua Billah]]
	+	:[[Takaful by Abdul Rahim]]
	+	:[[Takaful for Microfinance]]
	+	:[[Takaful Opperunities and Challenges By Azeem Pirani]]
	+	:[[Takaful Products Family Takaful Linked Investment Plans by S]]
	+	:[[Takaful World Prospective Middle East & North Africa]]
	+	:[[Takaful]]
	+	:[[Takful - Zubair Mughal]]
	+	:[[Takful Report]]
	+	:[[The Islamic Vision Presentation]]
	+	:[[The Success of Retakaful by Farid Benbouzid]]
	+
	+
	+
	+	== DOCUMENT REFERENCES ==
	+
	+
	+	=== Number of Pages ===
	+	12
	+
	+
	+	=== Published Date ===
	+	2016-09-17 01:19:33
	+
	+
	+	== Full Document ==
	+
	+
	+	[http://45.40.136.134/~hodhood/HodHoodDocuments/IslamicFinance/Takaful/Takaful%20and%20Mutuality%20by%20Mohd.%20Masua%20Billah.pdf Read the Full Document]
	+
	+
	+	[[Category:Islamic Finance]]
	+
	+	[[Category: Takaful]]

Takaful by Abdul Rahim - Revision history

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